The U.S. Securities and Exchange Commission (SEC) recently unanimously voted to issue proposed rules under Title III of the JOBS Act related to crowdfunding. Crowdfunding is a general term for internet-based fundraising characterized by decentralized groups of donors/investors individually committing relatively minor amounts of capital to small businesses, social projects, artistic performances, etc. Popular sites such as Kickstarter and IndieGoGo already provide a crowdfunding platform for the solicitation of donations, while sites like Fundrise, CircleUp and AngelList offer securities using existing securities registration exemptions such as Regulation A and Regulation D. However, under current federal securities laws and regulations, participation in crowdfunding offerings under Regulation D cannot be extended to non-accredited investors, and the use of Regulation A involves an onerous disclosure and review process at both the state and federal levels. The JOBS Act and the recently released proposed rules provide an outline for a regulatory regime that narrowly permits certain issuers, investors and intermediaries to participate in investment-based crowdfunding while attempting to limit the occurrence of fraud.

Broadly stated, the JOBS Act exempts certain activities related to crowdfunding from the registration requirements of the U.S. Securities Act of 1933 (Securities Act), and provides investment limitations on investors, as well as disclosure requirements for issuers and intermediaries engaged in crowdfunding transactions. The JOBS Act also exempts certain crowdfunding intermediaries (funding portals) from broker/dealer registration under the U.S. Securities Exchange Act of 1934 (Securities Exchange Act).